Were you aware of the fact that political and geopolitical changes and even hypothetical changes remain the biggest factors behind the price of gold? There are many other aspects that have an impact on this matter, of course, and in this article we will provide a simple and clear overview of the matter.
Gold trading is an ancient and still extremely influential human practice and it is worth reading about it to learn all the basics behind it and to stay up-to-date with one of the most important practices in our world.
Why is gold trading a thing?
Gold has often been featured in movies, books, songs and even mythology as one of the most precious and important prizes for mankind. But what are the reasons behind this matter? Why is gold so valuable? Well, there are several reasons behind this; let’s see them in this section.
First of all, gold is rare and difficult to extract. This has always been the case, as many people throughout history have used their whole lives in pursuit of gold. Additionally, gold is malleable and can be formed in many different shapes whenever needed. There are many applications of gold and some of them are electronics, dentistry, medical tools, defense, aerospace, automotive industries and many others. Gold also has some interesting properties, as it is not only durable but also non-corrosive. Plus, the obvious: gold is pretty to look at and we humans are very aesthetic beings.
What influences the price of gold?
As of February 2023, the price of gold was more than $1,870 an ounce. That’s quite high, and it is fair to say that the price of this precious metal has increased quite a bit over the past 50 years. But why? There are several reasons behind this, and we will debunk them now in this section.
The reasons behind the change in the price of gold are gold production, jewelry demand, reserves, the value of the U.S. dollar, and, of course, market volatility. Central banks often hold not only paper currencies but also gold in reserve. They also often diversify between these two reserves due to the fact that the price of gold typically rises. Interestingly, many nations all around the world have reserves that are composed primarily of gold.
We mentioned the value of the U.S. dollars in the reasons behind the price change in gold, and that’s because the metal is dollar-denominated. A stronger U.S. dollar tends to keep the price of gold lower and more controlled, while a weaker U.S. dollar during gold trading hours might mean an increase in the price of gold. In other words, more gold can be bought when the dollar is weaker.
Because of this, gold is often seen as a hedge against inflation, which happens when prices rise, and as they do, the value of dollars falls. But as inflation rises, so does the price of gold. This brings us to the core question of this article: how do global politics affect gold trading? We will discuss this in the next section.
How do global politics affect gold trading?
Inflation is a key aspect of this matter, as it relies on economic uncertainty and political issues. This is why, when inflation rises, people start to invest in fixed assets such as gold, as we mentioned in the previous section. This is due to the fact that gold retains its value regardless of the phenomenon of inflation.
Simply put, if the value of money and not only the US dollar drops, the price of gold begins to rise. This means that businesses and individuals will start to invest in gold and this is called inflation hedging. It is quite a useful practice but it is often affected by various variables such as population growth, technological innovation and many other aspects of the world that are in constant evolution.
Gold prices can, of course, be volatile, too and this is due to the vast range of variants. At the same time, it is often globally recognized that investing in gold can be much more stable than investing in currencies. At the same time, politics have a deep impact on the economy and on the price of gold as well, even if less so.
In this article, we talked about gold and the reasons behind its popularity, to the ways in which its price fluctuates due to the global economy, we tried to cover the matter of gold investments in a cohesive and useful way. Of course, there are many more in-depth sources you could consult but this article already gives you a clear overview of the matter which can be useful when approaching the world of gold investments. We hope you enjoyed reading this article, and we thank you for reading it.